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2000 DIGILAW 986 (DEL)

BAKSHI STILS LIMITED v. GOVERNMENT OF INDIA

2000-11-17

S.K.AGARWAL

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S. K. Agarwal ( 1 ) THE petitioner in this petition under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (for short the Act), has prayed for directions to the respondents to appoint an Arbitrator and for reference of disputes for adjudication as per Clause 2900 of the Indian Railway Standard Conditions of the Contract (for short IRS Conditions of Contract ). It is alleged that on 6/12/1993 contract was awarded to the petitioner for manufacture and supply of MCI Inserts, against Limited Tender No. CS-103/1993; total quantities to be supplied under the contract were 94 lacs MCI inserts, at the rate of Rs. 33. 50 per piece, which were to be supplied during 24 months, in equal monthly instalments. Subsequently, the delivery period was extended from 24 to 30 months, but other conditions remained the same. IRS Conditions of Contract, formed part of the contract. Clause 10. 1 of the contract empowered Ministry of Railways, Railway Board to enhance or reduce the contractual quantity upto 25% on the same terms and conditions, at their sole discretion with 30 days advance notice. It is further alleged that in pursuance of the said contract, the petitioner started manufacturing and supplying the MCI Inserts against the supply order issued by the respondents but the respondents did not issue the requisite release order upto November, 1995. The petitioner vide letter dated 25/11/1995 requested the respondents, to issue the release order as per the contract and apprised them that the petitioner had been holding stocks without knowing when the material would be required that till 15/03/1996 only 75% of the quantity was supplied though upto that date the respondents ought to have issued release orders covering 85% of the contracted quantity. The petitioner requested for supply order but the respondents in violation of the terms of the contract, reduced the supply by 25% of the entire contract, vide letter dated 24/04/1996. The petitioners raised the dispute requesting that the reduction was absolutely illegal and against the terms of the contract, and that they had suffered huge losses to the extent of 2. 60 crores. The petitioners raised the dispute requesting that the reduction was absolutely illegal and against the terms of the contract, and that they had suffered huge losses to the extent of 2. 60 crores. Relevant portion of Clause 2900 of IRS Conditions of Contract reads as under : 2900 Arbitration (A) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matter the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of a Gazetted Railway Officer to be appointed by the Arbitrator, by the General Manager in case of contracts entered into by the Zonal Railways and Production Units; by any Member of the Railway Board in case of contract entered into by the Railway Board and by the Head of the organisation in respect of the contract entered into by the other organisation under the Ministry of Railways. . . . . . . . . . (b) (c) (d) (e) (f) (g) (h) ******* ( 2 ) ON 14. 5. 1998, the petitioner requested the respondents to appoint an Arbitrator. The petitioner has now sought directions to the respondents for appointment of Arbitrator and for reference of the following disputes. (A) whether the cancellation of 25% of the total contract was as per the terms and conditions of the contractor not and its effect thereto. (b) Whether the petitioners are entitled to recover an amount of Rs. 2. 60 crores from the respondents on account of actual loss suffered by them due to reduction of 23. 5 lac pcs and for the wrongful cancellation of the contract. (c) Whether the petitioner is also entitled to the interest on the claim of damages, if so, at what rate and for what period. In reply the respondents have inter alia pleaded that the supply of MCI, inserts was reduced by 25% of the contracted quantity, as per the terms of the contract; that the petitioner was required to supply only 94 lacs pieces of MCI/inserts by 26/06/1996 and that quantities to be supplied were reduced within the limitation prescribed. ( 3 ) I have heard the learned Counsel for the parties and have been taken through the record. ( 3 ) I have heard the learned Counsel for the parties and have been taken through the record. Learned Counsel for the petitioner argued that while exercising powers under Sub-section (6) of Section 11 under the Act, the Court is required to pass an order of an administrative nature and the objections on merits of the claim raised by respondents can be examined only by the Arbitrator. Reliance was placed on Supreme Court decision in M/s. Sundram Finance v. M/s. NEPC India Ltd. , JT 1999 (1) SC 49=1 (1999) SLT 179; Wellington Associates v. Kirit Mehta, (2000) 2 L. R. I. 242=ii (2000) CLT 139 (SC)=iv (2000) SLT 31, Ador Samia Ltd. v. Peekay Holdings Ltd. , (1999) 8 SCC 572 =vii (1999) SLT 371 =iv (1999) CLT 53 (SC) and Konken Railway Corpn. Ltd. and Ors. v. M/s. Mehul Construction Co. , 2000 (6) SCALE 71 =vi (2000) SLT 321, wherein it was held : BEARING in mind the purpose of legislation, the language used in Section 11 (6) conferring power on the Chief Justice or his nominee to appoint an Arbitrator, the curtailment of the powers of the Court in the matter of interference, the expanding jurisdiction of the Arbitrator in course of the arbitral proceeding, and above all the main objective namely, the confidence of the international market for speedy disposal of their disputes, the character and status of an order appointing Arbitrator by the Chief Justice or his nominee under Section 11 (6) has to be decided upon. If it is held that an order under Section 11 (6) is a judicial or quasi-judicial order then the said order would be amenable for judicial intervention and any reluctant party may frustrate the entire purpose of the Act by adopting dilatory tactics in approaching a Court of Law even against an order of appointment of an Arbitrator. Such an interpretation has to be avoided in order to achieve the basic objective for which the country has enacted the Act of 1996 adopting Uncitral Model. Such an interpretation has to be avoided in order to achieve the basic objective for which the country has enacted the Act of 1996 adopting Uncitral Model. If on the other hand, it is held that the order passed by the Chief Justice under Section 11 (6) is administrative in nature, then in such an event in a case where the learned Chief Justice or his nominee refused erroneously to make an appointment then an intervention could be possible by a Court in the same way as in such an event in a case where the learned Chief Justice or his nominee refused erroneously to make an appointment then an intervention could be possible by a Court in the same way as an intervention is possible against an administrative order of the Executive. In other words, it would be a case of non-performance of the duty by the Chief Justice or his nominee, and therefore, a mandamus would lie. If such an interpretation is given with regard to the character of the order that has been passed under Section 11 (6) then in the event an order of refusal is passed under Section 11 (6) it could be remedied by issuance of a mandamus. We are persuaded to accept the second alternative inasmuch as in such an event there would not be inordinate delay in setting the arbitral process in motion. But, as has been explained earlier in the earlier part of this judgment, the duty of the Chief Justice or his nominee being to set the arbitral process in motion it is expected that invariably the Chief Justice or his nominee would make an appointment of Arbitrator so that the arbitral proceeding would start as expeditiously as possible and the dispute itself could be resolved and the objective of the Act can be achieved. ( 4 ) LEARNED Counsel for the respondent, on the other hand, argued that in fact there is no valid claim for reference and while placing reliance on Clause 10. 1 of the contract it was argued that quantities could be reduced by the respondents at their sole discretion upto 25% by 30 days advance notice. ( 4 ) LEARNED Counsel for the respondent, on the other hand, argued that in fact there is no valid claim for reference and while placing reliance on Clause 10. 1 of the contract it was argued that quantities could be reduced by the respondents at their sole discretion upto 25% by 30 days advance notice. ( 5 ) THERE is no dispute that on 6/12/1993 the petitioner was awarded the contract to manufacture and supply of MCI inserts and the order was to be supplied within the currency of 30 months in equal monthly instalments. Under Clause 9 the respondents were entitled to arrange deliveries from the alternative source in the contractor s account for any extra expenditure in addition to the penalty charges for the delayed deliveries subject to the maximum of 10%. In case of the failure on the part of the contractor to effect the delivery month delivery. The existence of the arbitration clause in the agreement is also not in dispute. ( 6 ) THE plea of the respondents that the quantity was reduced by 25% as per the terms of the contract and hence the dispute is not arbitrable, is not tenable at this stage. This issue can be decided only by the Arbitrator. The dispute arises, when there is a claim by one party and denial or repudiation of the claim by the other, this clearly is the case here. While exercising jurisdiction under Sub-section (6) or (11) of the Arbitration and Conciliation Act, 1996. The Court has not to see whether a particular claim is genuine and tenable. The validity of the claim has to be decided by the Arbitrator. ( 7 ) IN view of the above, the petition is allowed. Respondents are directed to appoint an Arbitrator and refer the disputes between the parties, for adjudication in terms of Clause 2900 of Indian Railways Standard Conditions of the Contract within 45 days. No order as to the costs.